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jamasony2 (32.43)

P2P Lending - a new asset class? Cheap loans for borrowers, over 9% returns for lenders.

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May 27, 2009 – Comments (14) | RELATED TICKERS: LEN , DIN , G

I've read good reviews lately for a P2P site called Lendingclub.com (there are others available, check p2p lending at Wikipedia, but theirs seems to have the lowest default rate by far due to stringent credit requirements on borrowers).  Person-to-person lending cuts credit card companies and banks out of the loan process, resulting in much lower rates for borrowers and much higher returns for lenders (their statistics show an average 9.05% return, but I'm not sure if that includes the continuing effects of the current recession).  

If one can truly get stable 10% returns, I'll take that any day over the ponzi scheme (erm, stock market).  I'm no market timer, as evidenced by my score (got too bearish in this last rally), and I'd be happy to get steady returns while fighting credit contraction.  I've allocated about $5000 into 50 "notes" (loans to different people with different loan risk grades - you can allocate as little as as $25 to each and spread your risk around), and will see what happens.   I shouldn't need this cash any time soon, but if I do, they have a secondary market where you can buy/sell your notes to other investors.  I'll post again in another 6 months with the results, and decide if I am willing to invest more with P2P lending.

I recommend the following reviews - they offer different investment strategies and thoughts.  Do use a referral link from the review if you sign up, you get a $25 sign up bonus (no bonus for the referrer, but they do have a borrower referral program).  Also, at the time of initial funding, before a bank account is added, you can use a credit card (up to $5k).   I used my 1% cash back card (will pay off immediately, of course), so that's a total $75 right away, very nearly risk free.

 Let me know your thoughts, or if you find any other good reviews/comparisons.  It seems like a good deal for investors, and a good deal for borrowers (an 8% loan here is much cheaper than the 20%+ some people pay on credit cards).  If you like the idea, spread the word to borrowers and lenders.

 Reviews:

  A/B loans (8-13%)

 C/D loans (14-17% APY)

 

 

 

 

 

 

 

14 Comments – Post Your Own

#1) On May 27, 2009 at 11:25 AM, jamasony2 (32.43) wrote:

Looks like the links didn't work, links here.

 

http://www.lendingclub.com/home.action

 https://www.lendingclub.com/press/javelin.pdf

 http://www.mymoneyblog.com/archives/2009/05/lendingclub-my-p2p-loan-portfolio-update.html

 http://www.thesunsfinancialdiary.com/investing/lending-club-loan-composition/ 

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#2) On May 27, 2009 at 11:27 AM, icuryy4me (< 20) wrote:

Hmm..none of the links seem to work...

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#3) On May 27, 2009 at 11:28 AM, icuryy4me (< 20) wrote:

I see our posts crossed paths!

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#4) On May 27, 2009 at 12:07 PM, chk999 (100.00) wrote:

prosper.com appears to have blown up over the default problem. I hope lendingclub has a better mechanism for getting borrowers to pay up. 

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#5) On May 27, 2009 at 12:34 PM, jamasony2 (32.43) wrote:

chk99 - so do I!  The PDF file above has some statistics and claims a 2.5% default rate (by dollar amount), so maybe you just factor that in to your expected return.  Their FAQ site says that they initially have an "internal" collections department try to contact the borrower, and if necessary they turn collections over to an outside company.

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#6) On May 27, 2009 at 12:35 PM, UKIAHED (97.21) wrote:

Been there - done that.  used only A and above credit risk. 

45 loans - 18 charged off in bankruptsy - 6 late - 8 paid off - 13 still current.  This is after 2 years (of 3 year loans).  If 10 of the 13 pay me back in full - thier principle and interest will give me my initial investment back in full (with no yield).  1 year left on the loans - we shall see...

I did this as a test case before I invested much money.  It was sad to see how many people with great credit took the loan and not make one payment - they took the loan and filed the bankruptsy within 30 days.  As you are not the only owner of these loans - you cannot write to the court to ask for payoff due to fraud.

I would never do this again...

Good luck

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#7) On May 27, 2009 at 12:40 PM, jamasony2 (32.43) wrote:

Wow, thanks for the info UKIAHED, that's disheartening.

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#8) On May 27, 2009 at 2:14 PM, MarkInvestor23 (< 20) wrote:

@ UKIAHED you might want to specify that this was a Prosper investment. Lending Club's A loans have 0% defaults - not one single A loan has ever defaulted in 2 years, and those carry a rate of about 8%.

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#9) On May 27, 2009 at 2:41 PM, UKIAHED (97.21) wrote:

I was/am using propser - they advertised a sub 5% default rate when I started - that changed fast.  I sure hope the results are better at Lending Club.  I like the idea - there just needs to be a better way to do the collections... and prevent the instant bankruptsy...

Good luck

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#10) On May 27, 2009 at 2:51 PM, FreeTruth (< 20) wrote:

I am like Jama and testing the waters with this with a small initial investment. It really is a slick interface and you do get a lot of transparency regarding the individual requesting the loan. I'd like to hear others experiences as well.

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#11) On May 27, 2009 at 2:54 PM, MarkInvestor23 (< 20) wrote:

Thank you UKIAHED. I think the difference is not just collections (although Lending Club has a strong collections process as I've seen several loans in my account become late, then back to current) but also the quality of the pool of borrowers to start with, as Lending Club approves 1 in 10 loan applications based on credit quality. For full disclosure i am an investor in Lending Club (as well as being a lender on the site). The ratio of approved vs. declined applications is public information though, and can be found on their Website under the "Statistics" tab, as well as in their SEC filings. I encourage you to give Lending Club a try with a small amount for few months and form your own judgement.  Mark. 

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#12) On May 27, 2009 at 3:00 PM, UKIAHED (97.21) wrote:

Cool - I will look further into it - as I said - I do like the idea of P2P - the execution and those taking advantage were my main issues.

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#13) On May 28, 2009 at 7:44 AM, Gemini846 (91.07) wrote:

If Lending Club is making the decisions on which loans to fund then its not real P2P lending. Its purchasing credit backed securities in which the risk model may or may not be up to standard. Basically at this point its a crapshoot and why do that for 8%?

You can get 8% on a LOT of corporate debt right now. TMFDeej talks a lot about his JPM bonds/preferreds. These are regulated securities traded on exchanges (for what that means).

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#14) On May 28, 2009 at 3:05 PM, MarkInvestor23 (< 20) wrote:

Gemini, just to clarify: Lending Club is not making decisions on which loans to fund. Lending Club only filters out the loans that do not meet the minimum credit standards, then individual investors decide which loans to fund.  

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